Paladin participates in Arrakis Finance Genesis House and deploys Arrakis PALM for PAL/agEUR pool on Uniswap V3.
Introduction to Arrakis Finance and Arrakis PALM
Arrakis Finance is a liquidity management protocol that helps project tokens bootstrap deep and sustainable liquidity in the most cost-effective way.
Since launch, Arrakis has achieved
- ~ $1.3 billion in TVL across Ethereum, Optimism and Polygon
- Over 25% Uniswap V3 total TVL
- 80+ projects have their liquidity managed via Arrakis vaults
Arrakis PALM - Protocol Automated Liquidity Management - is a service that consists of a suite of liquidity management strategies researched and developed by Arrakis Core strategists (Bene Gesserit). It aims to help projects bootstrap and maintain sustainable and deep liquidity.
By leveraging the concentrated liquidity nature of Uniswap V3 and the hyper flexibility made possible by Arrakis infrastructure, PALM is able to create market making experience that resembles Central Limit Order Book (CLOB), and help projects
Bootstrap liquidity by acquiring more base asset inventory. For instance, Paladin can seed the liquidity with an initial composition of 95PAL/5agEUR. PALM’s bootstrapping strategies will progressively balance it towards 50/50. Paladin can now allocate more of its base assets to building the core products instead of liquidity provision.
Execute market making strategies in a cost-effective, transparent and automated manner, to ensure deep and sustainable liquidity. After reaching a healthy liquidity composition, PALM will shift the focus to actively managing multiple concentrated ranges around the current price, to minimize slippage and sufficiently support ongoing trading activities.
Arrakis manages liquidity via Arrakis vaults, which tokenize liquidity positions originally represented as NFTs in Uniswap V3, hence making them fungible, composable, and able to be easily integrated into any protocol.
What is the Arrakis Finance Genesis House?
The Genesis House is the launch partner program Arrakis has set up for Arrakis PALM. A select group of projects can participate and be the first to use PALM.
There has been ongoing discussion between Arrakis and Paladin teams regarding how Arrakis can best support Paladin with its plan to expand liquidity to other DEXs. And both teams concluded that using the services from Arrakis by participating in the Genesis House would bring the most and best benefits to Paladin, which means that Paladin would deeper liquidity much quicker and cheaper, co-marketing via the Arrakis Genesis House would bring more eyes to Paladin, and on top of all that, we would take part in new novel technological experiments.
Additionally, in the case of Paladin, it could also mean a reduced size on the under-collateralized loan from Angle Protocol, hence less interest liability but still the same or even higher capital efficiency.
In terms of security, the contracts are internally audited, and there will be a whitelist for the smart contract- only the Paladin multisig address will be able to interact with it.
Background & Motivation
Currently, the liquidity situation for $PAL can be summarized as below:
As indicated from the table, even with an incentive spending of maximum 15k $PAL per week, there is still a significant slippage on $PAL for a $100k worth swap, which is a clear sign of weak liquidity depth.
It is also reasonable to assume that with the diminishing of the incentive over time, the slippage will most likely increase further due to the departure of the mercenary LPs, and majority of the incentive will be sold into the same pools.
Therefore, we as Arrakis propose to provide Paladin with the full spectrum of liquidity management services on Uniswap V3 with PALM, to create deep and sustainable liquidity for $PAL without the need of any liquidity incentives.
Depending on the liquidity situation of $PAL at the time of the service being initiated, in general, the liquidity management will be conducted in 3 phases:
Phase 1 - Accumulation of base asset
Paladin deposits roughly 850k $PAL that is currently sitting at UniV2 and 50k $agEUR into an Arrakis managed vault. The underlying strategy focuses on the accumulation of $agEUR so that the ratio of PAL/agEUR can be pulled towards 50/50
Phase 2 - Redefinition of liquidity ratio
Once there is sufficient $agEUR accumulated in the vault, Paladin can request to redefine the liquidity ratio of PAL/agEUR based on its own then-current market outlook, and Arrakis will adjust the underlying strategy accordingly to achieve and maintain the newly defined ratio. Paladin also has the option to dedicate such decision makings to a market maker, e.g. Arrakis.
Phase 3 - Growth & Expansion
More liquidity will be needed with the growth of both the trading volume and the demand for $PAL to be tradable on other DEXs or networks. Arrakis will help Paladin manage liquidity both vertically, i.e. maintain a deep and sustainable liquidity pool with more inventory from Paladin to accommodate the increasing trading demand, and horizontally, i.e. seamlessly manage liquidity in all avenues by automatic rebalancing and arbitrage among them, therefore unifying isolated markets and fragmented liquidity into an efficient cross-DEX and cross-chain liquid market.
For the services provided, Arrakis charges fees on two fronts:
- Management fee: 1% of AUM
- Performance fee: 50% of trading fees generated
Note that the performance fee is ONLY over the trading fees. All other revenues, e.g. $ANGLE rewards for the PAL/agEUR pool, shall be received by Paladin intact.
- Arrakis will effectively become the liquidity management arm of Paladin and use its domain expertise to provide dedicated liquidity management solutions, while the core team can save the technical & operational overhead and focus its resources on building Paladin.
- Only a limited amount of initial base asset inventory (or possibly zero if there is already an existing market on Uniswap V3) is needed with Arrakis’ liquidity management strategies.
- Arrakis’ liquidity management solutions will significantly improve the current liquidity situation of $PAL, and at the same time eliminate the need of liquidity incentive, hence preserving the value of $PAL from constant selling pressure by mercenary LPs otherwise.
- Arrakis will also assist and advise on any market making related decision makings, and the future growth & expansion of $PAL liquidity, to provide a full spectrum of liquidity management services.
Paladin community is content with the current liquidity situation for PT, and willing to have Paladin rent / buy liquidity with $PAL incentives for a foreseeable future.
Discussion and temp check first.